No-Bid Contract to Replace Schools After Katrina Is Faulted
Published: November 11, 2005
BAY ST. LOUIS, Miss., Nov. 10 - From their new metal-encased classroom, the third graders who returned to school this week can look straight into the carcass of the old North Bay Elementary.
To the Federal Emergency Management Agency, the modular classrooms lined up next to the soon-to-be demolished former school show, as the billboard out front boasts, "Katrina Recovery in Progress."
But to critics, the 450 portable classrooms being installed across Mississippi are prime examples in their case against FEMA and its federal partner, the Army Corps of Engineers, for wasteful spending and favoritism in the $62 billion hurricane relief effort.
Provided by a politically connected Alaskan-owned business under a $40 million no-bid contract, the classrooms cost FEMA nearly $90,000 each, including transportation, according to contracting documents. That is double the wholesale price and nearly 60 percent higher than the price offered by two small Mississippi businesses dropped from the deal.
In addition, the portable buildings were not secured in a concrete foundation, as usually required by state regulations because of safety concerns in a region prone to hurricanes and tornados.
The classroom contract has already prompted a lawsuit from one of the Mississippi companies and a government investigation.
"The fact that natural disasters are not precisely predictable must not be an excuse for careless contracting practices," David E. Cooper from the Government Accountability Office, told Congress recently. In testimony submitted this week, Mr. Cooper said, "We found information in the corps' contract files and from other sources that suggest the negotiated prices were inflated."
Officials at Akima Management Services, the contractor that got the job, say they that while the cost was high, this was not a case of price gouging. The speed demanded in installing the classrooms required charging a premium, said John D. Wood, the company's president.
"What we provided to the government was a fair and reasonable cost given the emergency conditions and the risks," Mr. Wood said. "If it had been done the other way, the kids would not have been in school yet."
Akima's majority owner is the NANA Regional Corporation. It is represented in Washington by Blank Rome Government Relations, a lobbying firm with close ties to the Bush administration and particularly Tom Ridge, the former head of the Department of Homeland Security, FEMA's parent agency. NANA's federal contracts have grown rapidly in recent years, according to the Center for Public Integrity.
Representative Bennie Thompson, a Mississippi Democrat, argues that the Akima deal made no sense. Instead of paying a middleman like Akima or the Mississippi companies, he told the Department of Homeland Security, the federal government should have purchased the classrooms directly. And he complained that FEMA had ignored a requirement to give preference to local businesses.
The transaction, Mr. Thompson wrote to the department's inspector general, could "result not only in the American taxpayer being exorbitantly overcharged, but will hamper real rebuilding and economic recovery efforts in Mississippi."
The school construction job is just one of several Hurricane Katrina deals under scrutiny by auditors and Congressional investigators. In awarding those contracts - for roof tarps, debris removal and mobile homes - the federal government said it had to move quickly and often turned to proven contractors accustomed to large-scale work.
The classrooms would have been by far the largest project ever undertaken by the Mississippi company seeking the contract, its owners acknowledge. The business, Adams Hardware and Home Center, has been selling modular classrooms statewide for decades and operates a local mobile home park.
Adams is based in Yazoo City, Miss., about 200 miles north of Bay St. Louis, in a hardware store with a hornets' nest hanging, an eight-point buck with a cigarette stuffed in its mouth and a life-size doll whose head is buried in a toilet outside.
After Hurricane Katrina passed, the father and two sons who run the business recognized that the calamity could turn into a windfall for them and a frequent partner, Magnolia State School Products of Columbus, Miss. Hundreds of schools across the state were damaged or destroyed.
"We set out to do this project not only, of course, to make a profit but to create jobs within our own community," said Kent Adams, the son of the owner, Paul Adams Jr., and manager of the business.
Calling their usual suppliers, they identified a Florida dealer and a Georgia manufacturer that could soon deliver more than 400 classrooms, Mr. Adams said. They proposed a deal for about $24 million, including transportation. That included a profit of about $4 million above the $19.7 million it would cost to acquire and transport the units, the contract documents show.
But when Adams and Magnolia approached the state education department with the offer, they were referred to the Corps of Engineers, which then referred them to Akima.
Akima (pronounced AH-kahmah) is a 10-year-old enterprise jointly owned by 14,000 Inupiat and Unangan Native Alaskans. Thanks to a law passed in 1971, it is one of several native-owned businesses eligible for no-bid federal contracts. Senator Ted Stevens, Republican of Alaska, has long pushed for changes in contracting rules that have helped enrich Alaskan companies.
Akima, now based in Charlotte, N.C., has 1,300 full- or part-time employees who work on 22 federal contracts, mostly with the military. It also has an agreement with the Army to supply modular buildings.
Mr. Wood said that neither Akima nor NANA used any ties to elected officials to pursue contracts, despite assertions in a Mississippi newspaper that the classroom deal may have been the result of political connections.
"We have never used or attempted to use political influence for any contract involving Akima," he said. "That is fact."
After Hurricane Katrina, FEMA asked the corps to help Mississippi reopen schools. The corps passed the assignment on to Akima.
The Adams company, as requested, faxed letters to Akima on Sept. 16, outlining its arrangements to acquire the portable classrooms.
But there were a few details the Adamses did not note in their faxes. Paul Adams Jr. had agreed to plead guilty in 1990 to a charge that he conspired with Magnolia to fix prices by divvying up the Mississippi modular classroom business.
Kent Adams said they did not disclose the matter because he and his father did not consider it relevant. The corps asks applicants to disclose such information for only the last three years. The charges were dismissed after his father paid a $1,000 fine and was put on probation.
Akima was not aware of the case until after it dropped Adams Home Center from the deal. But its executives were worried about other issues, Mr. Wood said. Akima concluded that the Mississippi business could not deliver as many classrooms as promised. That meant Akima could not meet deadlines set by the Corps, which wanted 200 classrooms in 14 days and the rest within 45 days, or by the end of October.
"He could not satisfy the schedule," Mr. Wood said.
Contract documents show that the Adamses had miscalculated how many classrooms the Georgia manufacturer had said it could provide. But Kent Adams said that after he and his father learned of the mistake, they identified alternate suppliers to make up the difference.
A day after the shortfall was identified, Akima completed a $39.6 million no-bid deal with the corps that did not include Adams Home Center.
Under the agreement, the corps would pay $87,892 per classroom, far more than the $55,545 Adams intended to charge, contract documents show.
Mr. Wood said the higher price was justified because Akima had to buy more expensive units and hire 187 truck drivers to meet the Corps deadlines. They had to pay twice the normal rate for drivers, he said.
"We did not gouge the government," he said, declining to disclose the company's profit. "If you had until next summer to deliver these trailers, you could get it cheaper."
But so far, government auditors are not convinced.
"We have concerns that the government may be paying more than necessary," Mr. Cooper, of the G.A.O., said in written testimony presented to Congress this week, adding that there was evidence of inflated prices. The auditors are also inquiring about how the classrooms were installed. After Akima delivered them, the structures were placed atop concrete blocks, with a series of straps tied to anchors drilled into the ground. Plywood walkways were then built, linking the classrooms.
A Mississippi State Board of Education code does not permit concrete blocks and piers to anchor modular units. Instead, it requires that they be built on foundations consisting of steel posts secured by poured-in-place concrete.
Regina Ginn, a director in the state office that imposes the standards, said she knew the new classrooms did not fully comply with the state code. But Ms. Ginn added that she considered the corps approach sufficient, an assessment endorsed by Jerry Brosius, a Pennsylvania engineer who has installed modular classrooms for more than 20 years.
"These are temporary buildings," Mr. Brosius said. "They are not going to be there for 20 years."
Michael H. Logue, a spokesman for the Corps of Engineers regional office in Vicksburg, Miss., defended the classroom deal. "We executed the fastest, most reasonable procurement action we genuinely felt was available to us," Mr. Logue said.
Akima met its corps deadlines for the classrooms. The total cost for the corps project to date has been $72 million, because of additional work, installing modular offices for government agencies and building walkways.
The project was not a total loss for Adams Home Center and its partner: They were paid a $200,000 finder's fee by the classroom supplier because Akima bought the units they had identified. But the Adamses have filed a lawsuit seeking some of the profits they had hoped to collect, to which Akima already has said they have no right to claim.
In Bay St. Louis, where homes and stores are still largely ruins, the debate over the classroom costs or contractor seem irrelevant.
"School being back for these children is a break from the reality of destroyed homes," said Johnette Bilbo, a teacher at North Bay. "It is just a start. But this is the first large step back to normalcy and routine in their lives."
